Cameron v Cole
[1944] HCA 5
•23 March 1944
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V Sommcrfeld
[HIGH COURT OF AUSTRALIA.]
CAMERON .
Appellant ;
Bankrupt,
AND
COLE ....
Eespondent.
Petitioning Creditor,
Bankruptcy—Notice of hearing of petition not given to debtor—Sequestration order—-
H. C. OF A.
Subsequent annulment—Rehearing of petition—Second sequestration order— 1943-1944.
Validity—Jurisdiction of Bankruptcy Court—IF^e(^er superior or inferior court
—Annulment of sequestration orders—Review and rescission of orders—Rehearing
Sydney,
after order of annulment—Bankruptcy Act 1924-1933 {No. 37 of 1924—No. 66
1943.
Nov. 12 ; Dec. 16.
of 1933), ss. 26, 71 (18), 124.
Bankruptcy—Bankruptcy notice—Founded on judgment obtained under Industrial
Arbitration Act (N.S.W.), s. 92—Set-off, counterclaim or cross demand—Whether
Melbotjene,
available—Setoff founded on judgment obtained by fraud—Power of Bankruptcy
1944.
Court to go behind judgment—Bankruptcy Act 1924-1933 {No. 37 of 1924—No
Mar. 23.
66 of 1933), 8. 52 {j)—Industrial Arbitration Act 1940 (A'.N.IP.) (1940 No. 2),
Latham C.J.,
Rich, Starke,
3. 92.McTiernan and
National Security—War service moratorium—Bankruptcy notice issued without leave
Williams JJ.
of court—Whether proceedings thereon validated—National Security {War Service
Moratorium) Regulations {S.R. 1941 No. 61—1943 No. 187), regs. 22, 33.
The Federal Court of Bankruptcy made a sequestration order at the adjourned hearing of a creditor’s petition in the absence of the debtor. Through inad^êrt- ence, the debtor had not had notice of the date of the adjourned hearing. On this ground, the Court subsequently annulled the sequestration order. The order of annulment directed that the petition be reheard and on the rehearing a second sequestration order was made.
Held, by Latham C.J., Rich, Starke and McTiernan JJ. {Williams J. dissent ing), that the Court had jurisdiction to make the second sequestration order. Per Latham C.J. : Section 124 of the Bankruptcy Act 1924-1933 is a complete code on the annulment of sequestration orders and does not authorize a new hearing after annulment. But the Federal Court of Bankruptcy is an inferior court and the first hearing and the first sequestration order were in the circum stances nullities, so that the hearing on which the second sequestration order
572HIGH COURT
[1943-1944.
H. ('. OF A. wiiH made should be regai'ded as the only and original hearing.
Per Ricft J. :
I!)43-I!)44.I’he Federal Court of Bankruptcy is a superior court and the first sequestration
( 'amekon
oi'dei' was voidable only. While an annulment of sequestration on the merits
■V.may put an end fo the petition, ss. 26 and 124 of the Bankrwptcy Act do not
Cole.operate to bar a rehearing after the formal annulment of a voidable order. Per Starke .1. : The Court had the necessary power to review its order under s. 26 of the Bankruptcy Act. Even if in strictness it should have discharged the order of annulment, that was the efl'oct, if not the form, of the second sequestration order. Per McTiernan J. : The Federal Court of Bankraptcy is a superior court and the first sequestration was an effective order although the first hearing of the petition was subsequently shown to have been defective : the petition was not spent in the circumstances by the making of that seques tration order and it was a proper exercise of the Court’s jurisdiction to direct a rehearing of it: but it may be that it could not have properly given such a direction if the first sequestration order had been annulled on the merits. Per Williams J. : The Federal Court of Bankruptcy is a superior court. There can be no rehearing after annulment under s. 124 of the Bankruptcy Act. A sequestration order cannot be annulled under s. 26, although that section may empower rescission of an order of annulment with consequent revival of the original sequestration order.
A bankruptcy notice was founded upon a judgment for wages under s. 92 of the Industrial Arbitration Act 1940 (N.S.W.). The debtor sought to rely, as a set-off, counterclaim or cross demand, upon a judgment which was found by the Federal Court of Bankruptcy to have been fraudulently obtained.
Held, by Latham. C.J., Rich, McTiernan and Starke JJ., that the debtor was not entitled so to rely upon the judgment; by Latham C.J. on the grounds first that the provisions of the Industrial Arbitration Act prevented any set-off against a judgment for wages under s. 92 thereof, and second, that the Bank ruptcy Court had power to go behind the judgment sought to be relied upon as a set-off ; by Rich and McTiernan JJ. on the second of those grounds ; and by Starke J. on the first of those grounds.
Held, further, by Latham C.J., Rich, Starke and Williams JJ., that where a proceeding brought in breach of reg. 22 of the National Security (War Service Moratorium) Regulations is pending it is the duty of the court to apply that regulation, and not to act upon the basis that reg. 33 will apply if the proceed ings are completed and the order is made.
Decision of the Federal Court of Bankruptcy, by majority, affirmed.
Appeal from the Federal Court of Bankruptcy, District of New
South Wales and the Australian Capital Territory.
An order made by the Chief Industrial Magistrate on 3rd July 1942 under s. 92 of the Industrial Arbitration Act 1940 (N.S.W.), directing Duncan Cameron to pay to Edward Cole the sum of £70 12s., claimed by him as wages, was filed in the District Court
68 C.L.R.]OF AUSTRALIA.
573
of tlie Metropolitan District, Sydney, and thereupon became a
H. C. OF A.
judgment of that Court.
194.3-1944.
A bankruptcy notice was served upon Cameron on 20th July 1942 in respect of the judgment. Cameron moved the Court of
Camerox
V.
Banlcruptcy to set aside this notice on the ground that he had a
Cole.
set-off exceeding the amount of Cole’s judgment debt which he could not set up in the action in which the judgment was obtained, but on 21st August 1942 he abandoned those proceedings.
On the ground that Cameron had not complied with the require ments of the bankruptcy notice, a petition that a sequestration order be made in respect of Cameron’s estate was presented by Cole on 8th September 1942.
In an affidavit sworn by Cameron he stated, inter alia, that he had been a member of the Australian Imperial Forces since 8th September 1942, and that leave to present the petition as required by reg. 22 of the National Security {War Service Moratorium) Regula tions had not been granted. Application for leave under reg. 22 had not in fact been made by Cole.
In September 1942 Cameron issued out of the Supreme Court a writ for the sum of £89 19s., which writ he said he served on Cole in that month.
The hearing of the bankruptcy petition was, on 22nd October 1942, adjourned with a direction that both parties were to be notified of the date of the hearhig.
Proceedings to set aside the judgment obtained by Cole were commenced and abandoned by Cameron.
A date for the adjourned hearing of the bankruptcy petition was fixed, but notice of that date was, inadvertently, not given to Cameron, and, in his absence, an order of sequestration was made against him on 22nd December 1942.
Cole not having entered an appearance in respect of the writ issued against him in September 1942, Cameron, on 31st May 1943, signed judgment against him.
Upon an application made by Cameron on 9th August 1943, the Court of Bankruptcy made an order by which it annulled the seques tration order made on 22nd December 1942, validated acts of the official receiver, and directed that the petition be reheard and that Cameron be limited, in his opposition, to the grounds of objection that: {a) the petition should not have been presented without leave of the Court as required by reg. 22 of the War Service Moratorium Regulations, and (6) at the time of the act of bankruptcy the presenta tion of the petition and the making of the sequestration order, Cole was indebted to Cameron in the sum of £89 19s.
VOL.
LXVIII.
574HIGH COURT
[1943-1944.
H. C. ot' A.
The petition was reheard on 13th August 1943. The judge found
1943-1944.as a fact that the writ issued out of the Supreme Court by Cameron
in September 1942 was never served on Cole and that Cole was not
(ERON
| V. | indebted to Cameron in any sum at all. |
rOLE.
The judge assumed in Cameron’s favour that he was a member of the forces, but did not decide that question. Upon that assump tion the judge held that reg. 33 of the War Service Moratorium Regulations made it possible and proper to proceed with the hearing of the petition, even if it had been presented at a time after Cameron had become a member of the forces. He made an order of seques tration, the act of bankruptcy being the failure of Cameron to comply with the bankruptcy notice on or before 21st August 1942.
Against that sequestration order Cameron appealed to the High Court on the grounds :—(a) that he was a member of the Common wealth Military Forces at the time when the petition was presented, and that leave should have been obtained under reg. 22 of the National Security {War Service Moratorium) Regulations before the presentation of the petition ; (6) that the Court of Bankruptcy having already made an order of sequestration upon that petition, and having annulled that order, there was not any jurisdiction to order the rehearing of the petition; (c) that upon the order of annulment being made the petition became exhausted and there was no available act of bankruptcy to support a rehearing of the petition ; {d) that the Court of Bankruptcy was bound in law to accept the judgment obtained by Cameron in the Supreme Court on 31st May 1943 as a final judgment, and it had no power to inquire into or review that judgment; and (e) that the Court of Bankruptcy should have found that on 13th August 1943 Cole was indebted to Cameron in a sum exceeding the debt claimed by Cole in the petition and, for that reason, should have dismissed the petition.
There was no appeal against the order of annulment.
Further facts and relevant statutory provisions and regulations
are set forth hereunder.
Sheppard, for the appellant. The appellant became a member of the forces within the meaning of the National Security {War Service Moratorium) Regulations upon the date he was called up for the Commonwealth Military Forces and attested, namely, 21st May 1942, and he was at all material times a member of the forces ; therefore, as the leave of the Court to present the petition had not been obtained as required by reg. 22 of those Regulations, the Court below, upon the annulment of the sequestration order, had no power to direct a rehearing of the petition. In any event, he was a member
68 C.L.E.]OF AUSTRALIA.
575
of the forces on the day when the petition was served upon him.
H. C. OF A.
Upon the appellant becoming a member of the forces all proceedings
1943-1944.
to enforce the judgment obtained against him became suspended
Camerox
by virtue of the provisions of reg. 15 (1a).
V.
The respondent did not,
as required by reg. 22, have the leave of the Court of Bankruptcy
Cole.
to issue the bankruptcy notice. A bankruptcy notice is not a pro ceeding. Reg. 33 appears in a different Part of the Regulations and has no effect or bearing upon regulations in other Parts. Its purpose is the protection of third parties. Reg. 22 deals specifically with bankruptcy petitions and, therefore, is applicable. Leave thereunder cannot, however, be given retrospectively {Parsons v. Bunge (1) ), nor can any breach thereof be cured by the application of the provisions of reg. 33. Rules and regulations couched in general terms, like reg. 33, are for the purpose of curing mere irregularities and not nullities {Halshury’s Laws of England, 2nd ed., vol. 26, p. 60 ; Crates on Statute Law, 4th ed. (1936), p. 240). The Court of Banlmiptcy is not an appropriate court within the meaning of reg. 33. A petition is only a step in a proceedmg and is not a complete bankruptcy proceeding or transaction as required by reg. 33. On the true construction of the Regulations and in the circumstances of the case, reg. 33 is not applicable {Craig v. Kanssen (2) ). In the circumstances, the Court below, in the exercise of the discretion conferred upon it by s. 56 (3) (6) of the Bankruptcy Act 1924-1933, should have dismissed the petition. The Court’s dis cretionary power to dismiss a petition was discussed in Cain v. Whyte (3). Insufficient regard was had to the fact that an important step had not been taken before the petition was presented. The appellant was deprived of his right to be heard upon an apphcation under reg. 22. There is not any provision in the Act or in the Rules thereunder for the rehearing of a petition that has been heard and determined. The true effect of an annulment order was dealt with in Bailey v. Johnson (4). Although a general power to rescind orders made by the Court is conferred by s. 26, the particular power in respect of sequestration orders is conferred by s. 124. The provisions of s. 124 are not applicable to the facts of this case. The distinction between s. 26 and s. 124 is shown in In re Hester ; Ex parte Hester (5). The course pursued by the Court below is without precedent and is not expressly or impliedly sanctioned by the Act or the bankruptcy practice. Upon the making of the order of annulment the petition became exhausted and there was not any available act of banlcniptcy
(!) (1941) 64 C.L.Pv. 421, at p. 4.34;
(3) (1933) 48 C.L.R. 639, at p. 645.
12 A.B.C. 169, at p. 183.
(4) (1872) L.R. 7 Ex. 263.
(2) (1943) 1 K.B. 2,56.
(5) (1889) 22 Q.B.D. 632, at p. 633.
57()HIGH COURT
[1943-1944.
H. ('. OK A.
to support a rehearing of the petition. The Court below was bound to accept the judgment obtained by the appellanl^against the respon
Camjchondent as a final judgment, and it had not power to inquire into or
V.
review tliat judgment.
The fact that the amount of that judgment
('ole.
was greater than the debt claimed by the respondent is a further
reason why the sequestration order should not have been made.
Hutton, for the respondent. Reg. 15 of the National Security {War Service Moratorium) Regulations has no relevancy to this matter. Under reg. 22 it is competent for the Court of Bankruptcy to grant leave to issue a bankruptcy notice or to present a bank ruptcy petition upon an ex parte application, and a stay of proceed ings can, if necessary and proper, be granted under sub-reg. 3 of reg. 22. That, in effect, was the procedure followed in this case. The appellant was not at any time prejudiced by the course pursued. The onus was upon the appellant to show that at the relevant time he was a member of the forces within the meaning of reg. 22. He
has not discharged that onus.
The Court below, in the exercise of
its discretion, heard the matter on the merits under reg. 22. There is nothing in reg. 22 which takes away from the judge, even in the case of a petition presented without leave, the right to adjudicate upon it if he is of opinion that it is proper that he should so adjudicate upon the petition and make an order. The fact that the granting of a stay of proceedings under reg. 22 (3) is discretionary shows that if the judge thinks fit he may make a sequestration order upon a petition presented without leave. The judgment purported to have been obtained by the appellant is a nullity. In Ex parte Jarvis ; In re Spanton (1) an order of annulment was discharged and the bankruptcy directed to be proceeded with as if that order had not been made. In a matter not provided for in the Bankruptcy Act 1924-1933, the Court of Bankruptcy has inherent power to control proceedings in that Court {New South Wales Mont de Piete Deposit and Investment Co. Ltd. v. Waters (2)).
Sheppard, in reply. The provisions of reg. 15 (1) {a) and (1a) are applicable and should not be ignored. The evidence is sufficient to establish that at the material time the appellant was a member of the forces. The onus is upon the respondent to show at what time the presentation of the petition was made.
At the conclusion of the argument the High Court ordered that the matter be remitted to the Court of Bankruptcy for the purpose
(1) (1879) 10 Ch. D. 179.
(2) (1914) 18 C.L.R. 704.
577
68 C.L.R.]OF
AUSTRALIA.
of the judge making a finding of fact as to whether Cameron was at
H. C. OF A.
1943-1944.
the time when the petition was presented against him a member
of the forces within the meaning of reg. 22 of the National Security
Cameron
V.
(War Service Moratorium) Regulations.
Cole.
The following statement was made by Judge Clyne :—“ In pur suance of a proclamation calling upon certain persons to enlist and serve as prescribed by the Defence Act 1903-1941, Cameron attended at a Drill Hall at Miller’s Point on 21st May 1942, where he was examined and then attested as a member of the Commonwealth Military Forces. Immediately thereafter, I believe, he returned to his ordinary civil occupation and no pay-book was ever issued to him as a member of the Commonwealth Military Forces. Cameron swore that having been attested he went home again and waited for a call-up. He also said that nothing happened until he ‘joined up with the Australian Imperial Force ’ on 8th September 1942.
Upon the foregoing evidence I consider I am not justified in finding as a fact that between 21st May and 8th September 1942 Cameron was a member of the forces within reg. 22 of the National Security (War Service Moratorium) Regulations.
There is no doubt that on 8th September 1942 Cameron enlisted for service with the Australian Imperial Forces and that on the same day the petition for the sequestration of his estate was pre sented to the Court. Cameron said that he joined up on the morning of 8th September and, if he could be believed, as was not the case, he joined up before the petition could have been presented to the
Court. Furthermore, he said that he was given a uniform about 11.30 a.m. the same day, and said that on the day that he enlisted he was served with a petition at about 4.35 p.m. in King Street, Sydney, and was then in civilian clothes. Cameron was a most untruthful witness and I think he had every need to have a good memory.
There is no record on the original petition of the time of the day when it was presented to the Court and there was no evidence before me which would enable me to say definitely at what time on 8th September the petition was presented to the Court.
Upon the whole of the evidence I cannot determine at what time upon 8th September 1942 Cameron enlisted with the Australian Imperial Forces nor at what time upon this day the petition was presented to the Court.
Accordingly, I am not able to find and do not find as a fact that Cameron was at the time when the petition for sequestration was presented against him a member of the forces within reg. 22 of the National Security (War Service Moratorium) Regulations . . . and I also add that I do not find as a fact that Cameron at the time
.">78HIGH COURT
[1943-1944.
H. ('. OF A. when the petition was presented against him was not a member of
194.M1)44.
forces within the said regulation.”
( '.\MERON
On 16th December further argument was heard.
V.
COÎE.
Sheppard. The Court below was in error in not allowing further
Dec. 16.
evidence to be called relating to whether or not the appellant
was a member of the forces at the material time.
Hutton. There is not any finding by the Court of Bankruptcy that the appellant was at the material time a member of the forces, therefore the matter does not come within the scope of the National Security {War Service Moratorium) Regulations.
Cur. adv. vult.
1944, Mar. 23.
The following Written judgments were delivered :—
Latham C.J. This is an appeal by Duncan Cameron from an
order of sequestration made against him on 13th August 1943 by
the Federal Court of Bankruptcy (Judge Clyne) upon the petition
of Edward Cole. The appellant relies upon three grounds of appeal.
In the first place he contends that he was a member of the Common
wealth Military Forces at the time when the petition was presented,
and that leave should have been obtained under the National Security
{War Service Moratorium) Regulations before the petition was pre
sented. No such leave was obtained. There is no finding by the
learned judge that Cameron was a member of the forces at the
relevant time. The second ground of appeal is that, the Court of
Bankruptcy having already made an order of sequestration upon
the petition, and having annulled that order, there was no juris
diction to order the rehearing of the petition upon which the order
which is the subject matter of the appeal was made. Thirdly, the
act of bankruptcy relied upon by the petitioning creditor was the
failure of the appellant to comply with a bankruptcy notice. The
appellant contends that he has a set-off against the petitioning
creditor which he was unable to raise in the proceedings in which
the judgment in favour of the petitioning creditor was given, and
which he therefore is able to raise in reply to the bankruptcy notice.
The bankruptcy notice was issued on 14th July 1942, and was
served on 20th July 1942. The judgment upon which the notice
was founded was a judgment for wages obtained by Cole against
Cameron for £70 12s. under the Industrial Arbitration Act 1940
(N.S.W.), s. 92. In August 1942 Cameron moved to set aside the
bankruptcy notice on the ground of the existence of a set-off exceed
ing the amount of the petitioning creditor’s judgment debt which
68 C.L.R.]OF AUSTRALIA.
579
he could not set up in the proceeding in which the judgment was
obtained {Bankruptcy Act 1924-1933, s. 52 (j)). Cameron abandoned
194.3-1944.
that motion. The petition was presented on 8th September
Camerox
1942. Cameron gave evidence directed to showing that he had
V.
Cole.
enlisted in the Commonwealth Military Forces on 8th September
before the presentation of the petition. The learned judge did not
Latham C.J.
accept Cameron’s evidence. In September 1942 Cameron issued a Supreme Court writ which he said he served on Cole in September
1942. The learned judge found as a fact that the writ was never served on Cole. When the petition came on for heariug on 22nd October 1942 the hearing was adjourned with a direction that both parties were to be notified of the date of heariug. Cameron began and abandoned proceedings to set aside the judgment obtained by Cole. A date was fixed for the adjourned heariug of the petition, but no notice of that date was given to Cameron. An order of sequestration was made against him in his absence on 22nd December 1942. In May 1943 Cameron signed judgment against Cole in default of appearance in the action in the Supreme Court and so obtaiued a judgment for £89 19s. On 9th August 1943 Cameron applied for and obtained an order annulling the order of sequestration made on 22nd December 1942 on the ground that he had no notice of the adjourned hearing of the petition. The order annulled the order of sequestration, validated acts of the official receiver, and directed that the petition be reheard. Upon the rehearing of the petition on 13th August 1943 the Court made a second sequestration order on the ground of failure to comply with the bankruptcy notice. The appeal to this Court is an appeal against this sequestration
order.
There is no appeal against the order of annulment.
In the first place, the appellant contends that he is entitled to the protection of reg. 22 of the National Security {War Service Moratorium) Regulations, Statutory Rules 1941 No. 61 as amended. That regulation provides that: “ (1) A person shall not, without leave of a court having jurisdiction in bankruptcy or insolvency, issue a bankruptcy notice ... or present a bankruptcy petition . , . against a member of the Forces . . . where the judg ment or final order in respect of which the bankruptcy notice would be issued is ... in respect of a debt or obligation which arose before the member at any time became engaged on war service.” Sub-reg. 2 provides that the court shall not grant leave under the regulation unless satisfied that, having regard to all the circumstances of the case (including the conduct and financial position of the member of the forces), it would be inequitable to refuse to grant leave. Sub-reg. 3 deals with the case where a bankruptcy petition
580HIGH COURT
[1943-1944.
H. ('. OF A. has, notwithstanding the provisions of the Regulations, been in fact
I94;M944.presented against a member of the forces, and provides that pro
Omf:ron
ceedings may be stayed if the court is satisfied that the inability
V.
('OI.K.of the member of the forces to pay his debts is due to circumstances
directly or indirectly attributable to his having been engaged on war
Latliani 0.,T.
service. This last provision can have no application to the circum stances of this case, because it is not suggested that the appellant was engaged on war service before 8th September 1942, when the petition was presented.
No application for leave to present the petition was made under reg. 22 (2). It was served on 21st September 1942. The appellant contends that he had become a member of the forces on 8th Septem ber 1942 at an hour earlier than that at which the petition was presented. Reg. 5 defines “ member of the Forces ” as meaning a member of the Commonwealth naval, military or air forces engaged on war service, and as including any person who, during the war, is or has been called up for active service with the forces.
The learned judge did not decide whether Cameron was a member of the forces at the time of the presentation of the petition. Upon the assumption that he was such a member, the judge held that reg. 33 made it possible and proper to proceed with the hearing of the petition, even if it had been presented at a time after Cameron
| had become a member of the forces. Reg. 33 is as follows ;— |
“ 33—(1) Subject to this regulation, no transaction or proceeding shall be invalidated by reason only that it has been entered into or taken in contravention of these Regulations, but nothing in this Regulation shall affect the liability of any person to a penalty in respect of any such contravention.
(2) The appropriate court may, on the application of the Attorney- General or of any person interested, make an order that a transaction or proceeding entered into or taken in contravention of these Regula tions shall be invalidated, but the court shall not make any such order if the court is satisfied that the effect of the order (if made) would be to prejudice the rights of a person in respect of, or arising out of, the transaction or proceeding which are acquired bona fide and without notice of the contravention.
(3) In this regulation, ‘ the appropriate court ’ means the High Court, or the Supreme Court of the State or Territory of the Common wealth in which the transaction or proceeding was entered into or taken.”
The existence of this regulation, however, does not entitle the court to pay no attention to such a regulation as No. 22 and to proceed 'wfith the hearing of a petition as if reg. 22 did not exist. It
68 C.L.R.]OF AUSTRALIA.
581
was the duty of the learned judge to apply reg. 22 if he found as a
H. C. OF A.
fact that Cameron was a member of the forces at the time of the
194.3-1944.
presentation of the petition. Where the court is actually dealing
Camerox
with and is in control of proceedings which have been taken in breach
V.
Cole.
of such a regulation as reg. 22, it is the duty of the court to apply
the regulation, and not to act upon the basis that if, in spite of the
I.atham C..r.
regulation, the proceedings are completed and an order made, the failure to observe the regulation would not in itself invahdate the proceedings, though they might be invalidated under reg. 33 (2). The court should, the proceedings still being pending, have applied reg. 22, and if it were found that Cameron was a member of the forces when the petition was presented, should not have proceeded with the hearing of the petition, and should have dismissed the petition. The question was not argued, but the terms of reg. 22 appear to require leave for the presentation of a petition to be granted, where necessary, before the petition is presented.
Upon the hearing of the appeal, this Court was of opinion that the case should be remitted to the Bankruptcy Court for the purpose of the learned judge making a finding upon the fact upon which the application of reg. 22 depended. We now have the result of his Honour’s consideration of this question. The learned judge, regarding Cameron as an untruthful and unreliable witness, is not prepared to believe his evidence that he had become a member of the forces at a time before the presentation of the petition, but is not prepared to find that he was not a member of the forces at that time. The result, therefore, is that there is no finding upon the fact upon which the applicability of reg. 22 depends. The appellant rehes upon reg. 22 for the purpose of establishing the proposition that the bankruptcy petition was presented in breach of the regula tion. It is for him to bring himself within the protection of the
regulation.
He has failed to do this, and accordingly the case must
be dealt with upon the basis that the regulation does not apply.
The next ground of appeal depends upon the fact that, though the learned judge annulled the first order of sequestration, he ordered a rehearing of the petition. It is contended for the appellant that when the order of sequestration was annulled all proceedings upon the petition were necessarily brought to an end—that s. 124 of the Bankruptcy Act 1924-1933 is a special and the only provision for the annulment of orders of seqiiestration, and that that section does not permit any rehearing of the petition upon which the annulled order was made.
On the other hand the respondent contends that s. 26 of the Bankruptcy Act was applicable. Section 26 (1) provides that the
582HIGH COURT
[1943-1944,
H. C. oi-’ A.
Bankruptcy Court may review, rescind or vary any order made by
1943-1944.
it in its bankruptcy jurisdiction. This is a very wide power and it
Cameron
has been held that it is almost without limit in proper cases {Ex 'parte
VKeicjhley ; In re Wike {!) ). Under a similar provision a petition
Cole.
which had been dismissed has been reheard {Ex parte Ritso ; In re Latham C.J.Ritso (2) ). An order annulling an order of sequestration has been reviewed and discharged {Ex parte Jarvis; In re Spanton (3)). But no authority was cited which decided that the power to rehear matters which is conferred upon the Court by s. 26 enabled the Court to rehear a petition after an order of sequestration made thereon had been annulled.
The Bankruptcy Act 1924-1933 contains in s. 124 specific pro visions relating to the annulment of orders of sequestration. Section 124 is in the following terms :—•
“ 124—(1) Where—■
{a) in the opinion of the Court a sequestration order ought not to have been made, or
(6) it is proved to the satisfaction of the Court that the debts of the bankrupt are paid in full, or that he has obtained a legal acquittance of his debts,
the Court may, on the application of any person interested, annul
the sequestration order.
(2) Where a sequestration order is annulled under this section, all sales and dispositions of property and payments duly made, and aU acts theretofore done, by the official receiver, trustee, or other person acting under their authority, or by the Court, shall be valid, but the property of the debtor shall vest in such person as the Court appoints, or in default of appointment shall revert to the debtor for all his estate or interest therein on such terms and subject to such conditions, if any, as the Court orders.
(3) Notice of the order annulling a sequestration order, stating the name, address and description of the debtor, the dates of the sequestration order and order annulling such sequestration order, the Courts by which the respective orders were made, and the date of the petition, shall be published in the Gazette, and in such other manner as is prescribed.”
The provisions of sub-s. 2 show that the section is dealing with the case of a sequestration order which had effectively divested the debtor of his property, so that some provision was necessary to deprive the official receiver of his title and to vest the property in the debtor or in some other person. Thus the section deals with
(1) (1874) 9 Ch. App. 667.
(2) (1883) 22 Ch. D. 529.
(3) (1879) 10 Ch. D. 179.
68 C.L.R.]OF AUSTRALIA.
o83
sequestration orders which were valid until annulled under the
section.
194.3-1944.
Section 124 (3) provides for advertisement in the Government
Cameeox
Gazette of an order annulling a sequestration order with particulars
V.
Cole.
which wiU inform the public that proceedings upon the petition
have come to an end.
If an order of annulment made under the Latham c.j.
section were subject to a condition for rehearing, the publication of the particulars specified in sub-s. 3 (which do not contemplate the imposition of such a condition) would mislead rather than inform the pubhc.
Where a composition or scheme of arrangement- is approved by the Court, a sequestration order may be annulled (s. 71 (18)). Apart from s. 71 (18), s. 124 contains all the provisions of the Act relating to annulment of sequestration orders. Section 124 is a special provision relating to that subject. The power to annul a sequestration order is given separately from the power conferred by s. 26 to review, rescind or vary orders. Section 124, is, as Baldwin on Bankruptcy and Bills of Sale, 11th ed. (1915), p. 717, says, with respect to the corresponding English section, “ intended to be a complete code ” on the subject of annulment of such orders {In re Gyll; Ex parte Board of Trade (1) ; In re Burnett; Ex parte Oficial Receiver (2); Ex parte Painter \ In re Painter (3) ; In re Izod ; Ex parte Official Receiver (4) )—See also Williams on Bankruptcy, 15th ed. (1937), pp. 143, 144. The power to order a rehearing, derived from s. 26, is not the power which is exercised when the Court makes an order of armul- ment. There is no power to annul a valid sequestration order without observance of what have been described as “ the very careful pro visions ” which are applicable in the case of an application to annul {In re A Debtor; Ex parte Official Receiver (5)). When an order for sequestration is annulled the debtor, in respect of his property, is restored to the status quo ante, subject to any order which the Court may make under that sub-section (See per Cockhurn C.J. in Bailey V. Johnson (6) )—he is remitted to his original situation. Section 124 authorizes an order for annulment, but in my opinion does not authorize a new hearing of a petition, after an order of sequestration made thereon has been annulled under the section, as if the petition were still pending.
Section 124 is required to make it possible to reconsider and, if thought proper, to annul, subject to appropriate conditions, seques tration orders which would otherwise be valid. A court has no
(1) (1888) 58 L.J. Q.B. 8; 5 Morr.
(3) (1895) 1 Q.B. 85.
272. (4) (1898) ] Q.B. 241.
(2) (1894) 63 L.J. Q.B. 423 ; 1
(5) (1937) 106 L.J. Ch. 225.
Manson 89.
(6) (1872) L.R. 7 Ex., at p. 264.
584HIGH COURT
[1943-1944.
II, ('. OK A.
inherent power to set aside its valid orders which have been entered or drawn np {Tlession v. Jones (1); Firm of R.M.K.R.M. v. Firm
| of M.R.M.V.L. (2) ; Kinch v. Walcott (3)). Such a power must |
C.\i«HUON
| depend upon statute. It is provided by the | Bankruptcy Act, s. 7, |
Coi. K.
that formal defects and irregularities shall not invalidate proceedings
I-iilluun C.J'.unless the court before which the objection is made is of opinion
that substantial injustice has been caused thereby" and that the injustice cannot be remedied by an order of that court. Thus, under this statutory provision, orders affected by irregularity or formal defect are voidable by the court. But the position is different if an “ order ” is null and void ah initio. There is then no real order
of the court.
Thus if a sequestration order is void in this full sense,
there is nothing in relation to which s. 124 can operate. If the hear ing of the petition upon which the order was made was no true and legal hearing, but only the semblance of one, it “ does not count ” (per Lord Sumner in Crane v. Director of Public Prosecutions (4) ). In the present case the sequestration order of 22nd December 1942 was made without any notice to the appellant of the adjourned date of hearing. Was notice “ a condition of jurisdiction ” ?—See Plowman v. Palmer (5). In my opinion it was. The failure to give notice was not an irregularity which would only make the order of sequestration voidable so as to entitle the appellant to ask the Court to set it aside. It made the order a nullity. Craig v. Kanssen (6) is a case the decision in which depended upon an examination of “ the distinction between proceedings or orders which are nullities and those in respect of which there has been nothing worse than an irregularity ” (7). It was held by the Court of Appeal that failure to serve process where service of process is required renders null and void (as distinct from irregular and voidable) an order made against the party who should have been served. Such an order, Lord Greene M.R. said, cannot “ be treated as a mere irregularity and not as something which is affected by a fundamental vice . . . That order is a nullity ” (8). The same view was taken in In re the Affairs of Hart (9) by a Court of Appeal consisting of members different from those who constituted the Court in Craig v. Kanssen (6). In Hart’s Case (9) the defect was, as in the present case, a failure to give notice of a day fixed for an adjourned hearing of a matter. It was held that “ the learned judge proceeded entirely
without jurisdiction ” and that the hearing was a nullity (10). The
order made was consequently a nullity.
(1) (1914) 2 K.B. 421, at p. 428.(6) (1943) 1 K.B. 256.
(2) (1926) A.C. 761, at p. 771.
(7) (1943) 1 K.B., at p. 258.
(3) (1929) A.C. 482, at p. 494. .(8) (1943) 1 K.B., at pp. 262, 263.
(4) (1921) 2 A.C. 299, at p. 332.
(9) (1943) 169 L.T. 60.
(5) (1914) 18 C.L.R. 339, at pp. 348, 349.
(10) (1943) 169 L.T., at p. 62.
68 C.L.R.]OF AUSTRALIA.
.585
H. C. OF A.
I agree with the comments w^hich my brother Rich makes upon the distinction between judgments and orders of a superior court
1943-1944.
and those of an inferior court. The question was not argued, but
Cameron
I am of opinion that the Federal Court of Bankruptcy is not a
V.
Cole.
superior court.
Only those courts are superior courts of which it
can be said that no matter is deemed to be beyond their jurisdiction
Latham C.J.
unless it is expressly shown to be so {Peacx>ck v. Bell and Kendal (1) ; Stroud, Judicial Dictionary, sub “Superior Court”— ̂and see Halshury’’s Laws of England, 2nd ed., vol. 8, pp. 528 et seq.)—and this cannot be said of the Court of Bankruptcy. An inferior court such as a county court may be made a superior court for a particular purpose. Thus where a court is described in a statute as a branch of a prmcipal court and is also given the jurisdiction of the Court of Chancery for purposes of bankruptcy jurisdiction, it may, though a county court (and therefore an inferior court) in its ordinary jurisdiction, be a superior court in relation to bankruptcy proceedings {Revell V. Blake (2) )—and see Skinner v. Northallerton County Court Judge (3). But the Federal Bankruptcy Court possesses no such characteristics. The Victorian Court of Insolvency had full powers in bankruptcy and for the purposes of that jurisdiction had all the powers, &c., of the Supreme Court {Insolvency Act 1915 (Viet.), s. 10). But the Court of Insolvency was nevertheless held to be an inferior court to which prohibition and certiorari would lie {R.
V.
Bankruptcy Act does not purport to create it as a superior court. The Act does not purport (as in the case of the Victorian Act) to confer upon the Court the powers of any specified superior court. The Court is a court of limited jurisdiction, with powers regarded as adequate for the purpose of exercising its jurisdiction—as in the case of a district court or county court. Jurisdiction in bankruptcy may be given either to a superior court or to an inferior court—e.g., under the Federal Act, s. 18, such jurisdiction is given both to Supreme Courts, which are superior courts, and to the Victorian Court of Insolvency—which, as already stated, was held to be an inferior court. The possession of jurisdiction in bankruptcy by any court should not, in my opinion, be regarded as showing that the court is a superior court.
Wallxic£,; Ex parte O’Keefe (4) ).
(1) (1667) 1 Wms. Saiuid. 69 [8.6 E.R.
(3) (1899) A.C. 439.
81].
(4) (1918) V.L.R. 285 : see pp. 315,
(2) (1873) L.R. 8 C.P. 533: see pp.
341.
544, 545.
580HIGH COURT
[1943-1944.
H. (' OF A. question whether the order of sequestration of 22nd December
ii)4.i-i944.
-was null and void in the full sense, and not merely voidable,
('amkkon
was not argued. But, if the two recent decisions in the Court of
V.Appeal to which I have referred are to be accepted, it appears to
('Ol.K.
me that it should be held that the order was null and void ah initio. Latiinin C.J. If fhis was the case the order remained null and void and there was no need to have recourse to the provisions of s. 124 for the purpose of getting rid of it. In order to keep the record clear, the court could set aside the order under an inherent jurisdiction, but there was no necessity to do so. The hearing on 22nd December 1942 was a nullity (as in Hart’s Case (1) ), and there was no need to order a rehearing when there had been no true and legal hearing. The hearing on 13th August 1943, when the order appealed against was made, should, I think, be regarded as the only and original hearing. Accordingly, though I agree with the appellant’s contention that there is no power under s. 124 to order a rehearing after annulment of a sequestration order, I am of opinion that the contention is irrelevant in the circumstances of this case.
The third ground of appeal is based upon Cameron’s alleged set-off against Cole’s judgment debt. In order to be able to rely upon it as an answer to the bankruptcy notice Cameron must show that it is a “ counter-claim, set-ofi or cross demand which equals or exceeds the amount of the judgment debt, and which he could not set up in the action or proceeding ” in which the petitioning creditor’s judgment was obtained (Bankruptcy Act 1924-1933, s. 52 (j)). Cole’s judgment was for wages, and was obtained in a proceeding under the Industrial Arbitration Act 1940 (N.S.W.), s. 92. This section imposes a liability upon an employer “ to pay in full in money ” certain wages, and authorizes the making of an order by the Registrar or an industrial magistrate for payment of “ the fuU amount of any balance due.” Such an order has the effect of a judgment in a District Court or a Court of Petty Sessions (s. 119). The effect of these sections requiring payment “ in full in money ” is to prevent any counterclaim, set-off or cross demand being set up against a claim for wages made under s. 92. In order to rely upon a set-off, counterclaim or cross demand in reply to a bank ruptcy notice, it must be shown that such a counterclaim, set-off or cross demand exists, though it could not be relied upon in the proceedings in which the petitioning creditor obtained the judgment upon which the bankruptcy notice is based. If, as in the present case, no set-off, &c., is possible, the debtor cannot claim the benefit
(1) (1943) 169 L.T. 60.
68 C.L.R.]OF AUSTRALIA.
587
of any alleged set-off under s. 52 (j). Thus the appellant should
H. C. OF A.
not succeed upon this ground of appeal.
1943-1944.
But I am further of opinion that the appellant fails upon this ground of appeal for the reason adopted by the learned judge that
Cameron
V.
Cole.
the Supreme Court judgment upon which he relies as providing a
set-off was fraudulently obtained. As to this Judge
Latham C.J.
Clyne said :—-
“ I say now, as I said before, that I do not believe one single word the debtor said about anything. He is a man without any scruples and prepared to say anything at aU. He says that there was a partnership between him and Cole. Cole says that there was no such partnership. I believe all that Cole has stated and I also beheve Cole when he says that he did not see the writ, and the writ which was put in evidence was not, I believe, served on Cole by Cameron.”
The Court of Bankruptcy will go behind a judgment and inquire into the consideration for a judgment, and, if it is shown that it was obtained by fraud, wih disregard it as the foundation of a bank ruptcy notice or as a petitioning creditor’s debt or as supporting a proof of debt: See cases in Williams on Bankruptcy, 15th ed. (1937), pp. 161-163, and Baldwin on Bankruptcy and Bills of Sale, 11th ed. (1915), pp. 673, 674. The rule is stated in general terms ux In re Flatau ; Ex parte Scotch Whisky Distillers Ltd. (1) :— “ When an issue has been determined in any other court, if evidence is brought before the Court of Bankruptcy of circumstances tending to show that there has been fraud, or collusion, or miscarriage of justice, the Court of Bankruptcy has power to go behind the judgment and to inquire into the validity of the debt.” See also Ex parte Butterfill; Ex parte Rashleigh ; In re Dingle (2). The Court in so exercising its discretion does not (and cannot) set aside the judgment, but declines to allow it to be relied upon in the bankruptcy juris diction {In re Vitoria-, Ex parte Vitoria (3)). A creditor is not allowed m the bankruptcy jurisdiction to rely upon a judgment dishonestly obtained. There is every reason for applymg the same rule to a debtor in that jurisdiction. In my opinion the rule should be apphed to an alleged set-off based upon a .judgment fraudulently obtained and relied upon in reply to a banlcruptcy notice. Accord ingly, in my opinion, the learned judge for this reason acted rightly, upon the facts as he found them (and the finding has not been and hardly could be challenged), in refusing to give any effect to the alleged set-off.
In my opmion the appeal should be dismissed with costs.
(1) (1888) 22 Q.B.D. 83, at p. 8.5.
(2) (1811) 1 Rose 192.
(3) (1894) 2 Q.B. .387.
588HIGH COURT
[1943-1944.
H. C. OF A.
Rich J. On 8th September 1942 a petition in bankruptcy was
194;M944.presented against tlie appellant Cameron on the ground that he had
Camfhon
failed to comply with a bankruptcy notice on or before 21st August
V.1942. On 22nd December 1942, the day appointed for the adjourned hearing of the petition, Cameron did not appear, and a seques tration order was made by the then Judge in Bankruptcy against him in his absence. It being subsequently made to appear to the present Judge in Bankruptcy that he had not had proper notice of the da}̂ fixed for the hearing of the petition, his Honour annulled the sequestration order and directed that the petition be reheard. Upon the rehearing, a sequestration order was again made, and this is an appeal from, that order. Three grounds have been taken:—
OoLE.
1. That the petition had been presented in breach of National Security (War Service Moratorium) regulation No. 22 ; 2. That his Honour had no authority, when annulling the first sequestration order, to direct a rehearing of the petition ; and 3. That in any event the appellant had a set-off against the petitioning creditor’s debt.
As regards the first ground, it is provided, inter alia, by reg. 22 that a person shall not, without leave of an appropriate court, present a bankruptcy petition against a member of the forces in respect of a debt or obligation which arose before the member at any time became engaged on war service. His Honour, on the rehearing of the petition, took the view that it was immaterial whether Cameron was a member of the forces or not when the petition was presented, because of reg. 33, which provides that no transaction or proceeding shall be invalidated by reason only that it has been entered into or taken in contravention of these Regula tions. This Court, however, was of opinion that, whatever the scope of reg. 33, it does not authorize a judge before whom a contention is raised that the petition has been presented in violation of reg. 22, to proceed to hear and dispose of it without investigating the facts to see whether the regulation precluded him from doing so. The case having been remitted to the Bankruptcy Court, in order that the fact might be determined, it now appears that, the petition having been presented on 8th September 1942, the appellant con tended that he had become a member of the forces at an earher hour on that day. The learned judge has reported that he regards Cameron as an untruthful and unreliable witness, and he is not prepared to believe his evidence that he had become a member of the forces at a time before the presentation of the petition. The onus being upon the appellant to bring himself within the regulation, and, he having thus failed to do so, it follows that there is no sub stance in this ground.
68 C.L.R.]OF AUSTRALIA.
589
H. C. OF A. 1943-1944.
The next ground taken is that his Honour had no jurisdiction to direct a rehearing of the petition.
I am unable to agree with this.
It is a fundamental principle of natural justice, apphcable to all
Camerox
courts whether superior or inferior, that a person against whom a
V.
Cole.
claim or charge is made must be given a reasonable opportunity of
appearing and presenting his case. If this principle be not observed,
Rich .J.
the person affected is entitled, ex debito justitiae, to have any deter mination which affects him set aside ; and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside {Craig v. Kanssen (1) ). In such a case there has been no valid trial at aU. The setting aside of the invalid determination lays the ghost of the simulacrum of a trial, and leaves the field open for a real trial {Crane v. Director of Public Prosecutions (2) ). In principle, therefore, there is no objection to the course taken by the learned judge in proceeding to rehear the petition when the invalid order has been set aside. It has been suggested, however, that there are obstacles in the Bankruptcy Act. Section 26 of that Act provides that the Court may review, rescind or vary any order made by it in its bankruptcy jurisdiction, and s. 124 that where, in the opinion of the Court, a sequestration order ought not to have been made, the Court may, on the apphcation of any person interested, annul the sequestration order. It was pointed out by Younger L.J. in In re Jordison ; Raine v. Jordison (3) that: “ The legislature is not, by the use of other than the clearest words, to be taken to have subverted in any statute fundamental principles whether of law or of equity. It is a matter of judicial obligation to the legislature itself that the court, in construing a statute, shall make that presumption.” A fortiori, in the absence of clear words, a statute should not be treated as depriving a court of the inherent jurisdiction possessed by every court to ensure that trials before it are conducted in accordance with the principles of natural justice. There is nothing in s. 26 which suggests any intention on the part of the legislature to interfere with the principles to which I have referred, nor is there ia s. 124. Assuming that the latter section should now be regarded as the governing section when the setting aside of a sequestration order is concerned, the effect of any particular setting aside necessarily depends on the circumstances. If the order is set aside on the merits, on the ground that it ought never to have been made, that is no doubt an end of the petition. But if it is set aside because the hearing of the petition was invalid for some
(1) (1943) 1 K.B., at p. 262.
(2) (1921) 2 A.C., at pp. 332, 333.
(3) (1922) 1 Ch. 440, at p. 466.
VOL. Lxviri.
38
590HIGH COURT
[1943-1944.
K. ('. OF A. reason which prevents it in law from being regarded as ever having
ih;:m944.been heard at all, there is nothing in s. 124 which prevents the Court
('amekon
from hearing, or absolves it from its duty of proceeding to hear,
V.the petition in due course of law.
('ole. It has been suggested, however (although the point was not
Kicli J.taken or argued before us on the hearing of the appeal), that there are procedural difficulties which prevent the course in fact taken by the learned judge from being effectual. It is said that when the irregularity with respect to service had been brought to his notice there were two courses open to him. He could have reviewed the order on the merits under s. 26 and then either confirmed or annulled it; or else, having annulled it (as in fact he did) on a point not going to the merits, he could have proceeded under s. 26 to review the annulment order on the merits, and either allowed it to stand or else annulled the annulment, and so resuscitated the defunct, invalid order. I see no reason for supposing that these courses would not have been open to him. But it is said that there was none other, and that by taking the course which he did he committed a fatal error in procedure which makes the whole proceedings necessarily ineffectual. I am unable to agree with this. There are two well- established rules. First, a court which, after a real trial, has given a valid decision determinative of right, liability or status, has no jurisdiction to recall it whatever mistakes may have been made in facts or law (In re St. Nazaire Co. (1) ; Hession v. Jones (2); Re V. G. M. Holdings Ltd. (3) ; Blyth v. Blyth (4)). Second, if in the course of a purported trial a fundamental irregularity has occurred which prevents it from being a trial at all, the decision of the Court is either void or voidable. It is settled by the highest authority that the decision of a superior court, even if in excess of jurisdiction, is at the worst voidable, and is valid unless and until it is set aside (Baron Martin advising the House of Lords in ScMt v. Bennett (5)); Revell V. Blake (6) (where Blackburn J. draws the distinction between a superior and an inferior court in this respect). I am unable to feel any doubt that the Federal Court of Bankruptcy is a superior court. The language of Lord Greene M.R., in Craig v. Kanssen (7), where he says that “ a person who is affected by an order which can properly be described as a nullity is entitled ex debito justitiae to have it set aside,” is correct as an abstract proposition; but since the order before his Lordship was one of a superior court, the expres sion is somewhat misleading, and his statement that the distinction
(1) (1879) 12 Ch. D. 88.(5) (1871) L.R. 5 H.L. 234, at p. 246.
(2) (1914) 2 K.B. 421.(6) (1873) L.R. 8 C.P. 533, at p. 544.
(3) (1941) 3 All E.R. 417.(7) (1943) 1 K.B., at p. 262.
(4) (1943) P. 15.
68 C.L.R.]OF AUSTRALIA.
o91
is “ between proceedings or orders wbicli are nullities and those
H. C. OF A.
in respect of which there has been nothing worse than an
1943-1944.
irregularity ” (1) fails, I venture to think with all submission, to
Cambkon
meet the actual facts of the case. This is true enough in the case of
V.
Cole.
an inferior court {In re the Affairs of Hart (2)); but in the case of
a superior court the distinction is between irregularities so funda
Rich J.
mental as to create an unconditional right, ex debito justitiae, to have the judgment set aside, and non-fundamental irregularities as to which the court has a discretion. Since the case before the Master of the Rolls v^as one of the former type, although no exception can be taken to his Lordship’s actual conclusion, his criterion was, with all deference, somewhat inaptly expressed. If the decision is void (as it may be in the case of an inferior court), the court may proceed to a real trial without any formal setting aside of the void decision [R. v. Marshani; Ex parte Pethick Lawrence (3) ; Bannister v. Clarke (4) ; In re the Affairs of Hart (2) ). I think it obvious that the purpose of ss. 26 and 124 of the Bankruptcy Act is to exempt courts exercising jurisdiction in bankruptcy from the operation of the first of the rules stated above. But I can find nothing in either of these sections or in any other provision of the Act which indicates an intention on the part of the legislature to interfere with the second. So far as concerns possible dealings by the official receiver prior to the annulment order, these are protected by the express provision of s. 124 (2). Dealings of the debtor before the annulment order are covered by s. 98, and dealings by him between the date of that order and the valid sequestration order by s. 96. These are all special provisions dealing with special cases, and upon the principle generalia specialibus non derogant the general provisions of ss. 60 and 91 should be read subject to them. In my opinion, the formal armulment of a sequestration order, which is voidable because made in a proceeding which was not a real hearing of the petition, leaves it competent to the Court to proceed to exercise its statutory jurisdiction to hear the still unheard petition. There is nothing inconsistent with this in the provision of s. 56 (3) (a) that if the Court is not satisfied with the proof of the service of the petition it may dismiss it. This is designed to prevent the making of voidable orders. It enables the Court in such a case either to dismiss the petition or to grant an adjournment to allow proper service to be effected. If, however, a voidable order had been made, the Court has, in my opinion, jurisdiction, when annulling the order, to make provision for hearing the petition if it thinks fit to do so : Cf. In re
(1) (1943) 1 K.B., at p. 258.(3) (1912) 2 K.B. 362.
(2) (1943) 169 L.T. 60.
(4) (1920) 3 K.B. 598, at p. 606.
592HIGH COUET
[1943-1944.
H. C. OK A.
the Affairs of Hart {1). For these reasons, I am of opinion that
tliere is no substance in the second ground.
('amkkonAs regards the third ground, it was for the appellant to satisfy
V.the judge that he had a counterclaim, set-off, or cross demand
C'OLK.
which equalled or exceeded the amount of the creditor’s judgment
Kich J.debt, and which he could not have set up in the action in which the
judgment was obtained. It was not, of course, necessary for him to establish that his claim to a set-off was valid, or was likely to be successful; but it was necessary for him to show that he had a bona fide claim which he was entitled to litigate {Re Duncan ; Ex parte Modlin (2)). The appellant relied upon a judgment which he had himself obtained against the petitioning creditor. The learned judge, on the material placed before him, came to the conclusion that this judgment had been fraudulently obtained by Cameron, without service of any proceedings upon the petitioning creditor. I see no reason for doubting the accuracy of his Honour’s findings in this respect. If so, it followed that the judgment on which Cameron sought to rely for his set-off was only in form a judgment. He had obtained it by the fraudulent abuse of the process of a court. In law it was voidable [Craig v. Kanssen (3)), and Cameron could maintain no claim that was bona fide in respect of it. This being so, there was, in my opinion, nothing to constrain the learned judge to find that Cameron had a set-off against the petitioning creditor for the amount of the judgment which he had in this way obtained against him by fraud.
For the reasons which I have stated, I am of opinion that the appeal fails on all grounds, and should be dismissed with costs.
Starke J. Appeal from an order of the Court of Bankruptcy, District of New South Wales, of 13th August 1943, sequestrating the estate of Duncan Cameron the appellant. An order sequestrating the estate of the appellant had been made on 22nd December 1942, but this order was annulled on 9th August 1943. And it was further ordered that the petition for the sequestration of the estate of the appellant be reheard on the following grounds of objection, namely, that the petition should not have been presented without the leave of the Court pursuant to the provisions of the National Security [War Service Moratorium) Regulations and that at the time of the alleged act of bankruptcy, the presentation of the petition and the making of the sequestration order the petitioner, the respondent Cole, was indebted to the judgment debtor, the appellant Cameron,
(1) (1943) 169 L.T. 60.
(2) (1917) 17 S.R. (N.S.W.) 152; 34 W.N. 49.
(3) (1943) 1 K.R. 256.
ms
HIGH COURT
[1943-1944.
H. (’. OF A. order simply to set aside a sequestration order under the inherent
UM;M944.
jurisdiction of the Court or to rescind it under s. 26 would not, there
Gamekon
fore, he completely effective. This and other difficulties are recog
V.nized and provided for by s. 124, which clothes the Court with special
t'OLE.
powers upon a rehearing where an application is made to annul a
Williams J.
sequestration order.
By s. 124 (1) (a) the Court is given the fullest power to remedy any injustice that the debtor may have suffered through a sequestration order having been improperly obtained. It can annul the order whenever, in the opinion of the Court, it ought not to have been made. It can decide, therefore, at a properly constituted hearing whether the order should have been made on the merits in the light not only of the evidence which was available at the date the seques tration order was made, but also of any evidence that has subse quently become available before the date of the apphcation to annul, so that I agree with the statement of the learned author of Williams on Bankruptcy, 15th ed. (1937), at p. 143, that there is no power to annul other than the express power conferred by the section; See per Cam J. in In re Gyll; Ex parte Board of Trade (1) and In re Hester (2) ; per Vaughan Williams J. in In re Painter (3) and in In re Burnett; Ex parte Official Receiver (4); and per Manning J. in In re Griffiths ; Ex parte Huntley (5).
When it was brought to his Honour’s notice that the sequestration order of 22nd December 1942 had been obtained without notice of the adjourned hearing having been given to Cameron, it was his duty to inquire whether, in all the circumstances, that order should not have been made. In order to determine that question he could have reviewed its propriety in the light, inter alia, of the objections which Cameron alleged that he could have raised against the making of that order if he had had an opportunity of being heard. If his Honour had considered that there was no substance in these or any subsequent objections, he could have refused to annul the order. If, on the other hand, he had considered that, if these objections had been raised, he would not have made the order, he could have annulled it. This view accords, mutatis mutandis, with that expressed by Kelly C.B. in Revell v. Blake (6) where he said :—“ In any case where a person interested failed to appear through some accident on the first hearing, he might apply for a rehearing and state the reason for his non-appearance, and show that the debtor carried on business in London ; and it might be the duty of the judge, if satisfied
(1) (1888) 58 L.J. Q.B., at p. 10; (4)
(1894) 63 L.J. Q.B. 423, at p. 424;
5 Morr., at p. 274.
] Marison 89, at p. 90.
(2) (1889) 22 Q.B.D., at p. 633.(5) (1892) 3 B.C. (N.S.W.) 6, at p. 9.
(3) (1895) 1 Q.B., at p. 87.
(6) (1873) L.R. 8 C.P., at p. 539.
68 C.L.R.]OF AUSTRALIA.
609
H. C. OF A. 1943-1944.
of tFe facts, to rescind the order of adjudication, and leave the
petitioning creditor to take proceedings in the London Court.”
But his Honour first of all annulled the order and then proceeded to make a second sequestration order.
(IVMERON
Under this order the bank
V.
Cole.
ruptcy would again commence on 21st August 1942, and all the
property which the bankrupt owned at that date and any property
Williams J.
which he acquired or which devolved on him after that date but prior to his discharge would vest in the official receiver appointed by the second order. During the operation of the first order, some of this property might have been disposed of to purchasers by the ofiicial receiver, and persons might have acquired title to some of it under s. 98. If a second order could be made on the same petition the question would arise as to the effect it would have upon these titles. They are all titles to property which, on the literal wording of s. 91, would vest in the ofiicial receiver appointed by the second order as from 21st August 1942, or on any subsequent date upon which the bankrupt acquired any further property, and, therefore, at a date antecedent to that upon which these persons acquired title from the first official receiver or under s. 98. In order to pre serve these titles it would be necessary to imply a limitation upon s. 91 so as to exclude the property in question from the property vested in the second official receiver by that section. This would be straining the literal construction of the section in the interests of justice. But such cases as In re Clark ; Ex parte Beardmore (1) and In re Wigzell; Ex parte Hart (2) show the difficulty of so doing. Further, the protection afforded by s. 98 is only expressed to be against the official receiver appointed by the first order ; and, even if these sections can be segregated as my brother Rich suggests by the use of the maxim generalia specialihus non derogant, there remains the further difficulty that if two sequestration orders can be made on the same petition two sets of preferential creditors can be created under s. 84, a result which would appear to be obviously opposed to the intention of the Act. Some of these difficulties which arise when a second sequestration order is made upon a second petition, whilst the debtor is still an undischarged bankrupt, have been recogniiied and provided for by s. 61 of the Act. But the section would hardly embrace a case where there was a voidable sequestration order made on a prior petition followed by a second sequestration order made on a subsequent petition followed by an annulment of the first sequestration order and the making of a second sequestration order on the prior petition. The express pro visions of this section are a further indication to my mind that the
(1) (1894) 2 Q.B. 393.
(2) (1921) 2 K.B. 835.
(ilOHIGH COURT
[1943-1944.
H. ('. UK A. only occasion contemplated by the Act in which a second sequestra 194:5-1944.tion order could be made to operate with respect to the same period
C.\M15RONor part of the same period as that covered by the first sequestration
V.order is where the second order is made upon a subsequent petition.
('OLH,
Furtlier, the sections which relate to the position of persons
WillUmis J .dealing with a bankrupt in the period between six months before
the date of the presentation of the petition on which the sequestra tion order is made and the date of the order are ss. 92 to 97. Of these sections I need only refer to s. 96, but this section could not have any operation in respect of any dealings with the bankrupt between 22nd December 1942 and 9th August 1943, because the efiect of the sequestration order of 22nd December 1942 was to vest in the ofiicial receiver any property that the bankrupt owned on 21st August 1942 or acquired between that date and 9th August 1943, so that, after 22nd December 1942 and until 9th August 1943, the bankrupt did not owm any property with respect to which s. 96 could operate.
It was contended that the order for the further hearing could be made under s. 26 (1) of the Act, which provides that the Court may review, rescind or vary any order made by it in its bankruptcy jurisdiction. I agree with the Chief Justice that a sequestration order cannot be annulled under this section. In addition to the reasons which he has given, this result follows, in my opinion, from the provisions of s. 54 (2), because under that section the rescission of a sequestration order would not discharge the bankruptcy. Fur ther, the second sequestration order of 13th August 1943 was not a review, rescission or variation of any previous order, but an indepen dent order causing a person who had ceased to be a bankrupt to revert to that status, but from a different date, in respect of the same act of bankruptcy upon which he had already been made bankrupt. An order of annulment made under s. 124 is an order made by the Court in its bankruptcy jurisdiction, so that it may well be that it is an order which can be rescinded under s. 26. But the Court would no doubt be slow to make such an order except on the ground of fraud, in view of the finality contemplated by s. 124. The efiect of the order would be to revive the previous bankruptcy. But I have been unable to find any case where it has been decided or suggested that there can be a readjudication under s. 124. In Ex parte Jarvis ; In re Spanton (1) the order before the Court of Appeal was an order discharging an annulment order similar to an annulment order which could be made under s. 71 (18). The order was that the bankruptcy should proceed in the same manner as if
(1) (1878) 10 Ch. D. 179.
68 C.L.R.]OF AUSTRALIA.
611
H. C. OF A.
the order of annuhiient had not been made.
The effect of the order
194.‘M!)44.
was, therefore, to revive the original adjudication.
It was not an
order for a fresh adjudication. This order was in accordance with
Ca.meron
what appears to be the recognized and established procedure in
V.
banlcruptcy: See In re Lavender (1) ; Ex parte Lawrence ; Re Bow
Core.
ring (2) ; In re A Debtor ; Ex parte Debtor (3) ; Harman v. Layton-
Williams J.
Bennett (4) ; Harman {Martin Coles) v. Official Receiver, Petitioning
Creditors and Trustee (5).
In the present case it could be contended that the order made by his Honour on 9th August 1943 was a conditional order because a rehearing of the petition was ordered at the same time as the annulment, and that, when his Honour rejected Cameron’s grounds of opposition, he could have rescinded the annulment order under s. 26 and thereby revived the original order of sequestration. Tliis procedure would have been in line with that adopted in In re Laveyider (1) and Ex parte Lawrence (2), and in accordance with the general structure of the Bankruptcy Act, and would therefore have been free from the difficulties and anomalies created by the second secjuestration order.
But, for the reasons already stated, I am of opinion that his Honour had no jurisdiction to make the order of 13th August 1943.
Under the Judiciary Act 1903-1940, s. 37, this Court has power in the exercise of its appellate jurisdiction to give such judgment as ought to have been given in the first instance. So that, if I was of opinion that the appeal failed on the merits but that his Honour had made an order in the wrong form, although the respon dent has not appealed against the order of annulment, I would be prepared seriously to consider whether it would not be proper to rescind the sequestration order of 13th August 1943 and the order of annulment of 9th August 1943 and thereby revive the original sequestration order of 22nd December 1942. But I am unable to adopt this course for the following reasons.
I agree with the Chief Justice that when his Honoiir’s attention was called to reg. 22 of the National Security {War Service Mora torium) Regulations, which make it illegal to present a bankruptcy petition without the leave of the Court against a member of the forces, he was bound to dismiss the petition if he was satisfied that, when the petition was presented to the Court, Cameron was a member of the forces. At the rehearing of the petition it was common ground that Cameron became a member of the forces on the same
(1) (1835) 4 L.J. Bkcy. 44.(3) (1924) B. & C.R. 1.
(2) (1846) 1 De Gex 269.
(4) (1935) 79 S.J. 108.
(o) (1934) A.C. 245.
012HIGH COURT
[1943-1944.
H. (. OF A. petitioii was presented. Cameron gave evidence
1943-1944. jf believed, proved that he became a soldier early on the morn
C'ameron
ing of 8th September, while it seems probable that the petition was
■
0.
not presented until later in the day.
In his judgment, his Honour
('OLE.
assumed that Cameron was a, member of the forces when the petition
WilliaHis J.was presented, but held that nevertheless the regulation would not
invalidate the petition. As this Court did not agree with his Honour, it became necessary to remit the matter to him with a request that he should find as a fact whether Cameron was a member of the forces at the time of the presentation. I believe that this Court intended his Honour to find the fact in the light of all the available evidence, but his Honour confined himself to the evidence which had already been given, and, on that evidence, held that he was not affirmatively satisfied that Cameron was a member of the forces at the material time. We were informed by counsel for the appellant that the fresh evidence which his Honour rejected was reliable evidence which would have proved that Cameron was then a member of the forces. This Court should be slow, in my opinion, to prevent the appellant from having an opportunity to tender this evidence.
The appeal should, in my opinion, be allowed and the sequestration order of 13th August 1943 set aside. It will then be open to the respondent to apply to the learned Judge in Bankruptcy for a rehear ing of the annulment order of 9th August 1943 with a view to its rescission, and on such a rehearing Cameron will be able to tender the fresh evidence.
In these circumstances I find it unnecessary to express any opinion upon the other grounds of appeal.
Appeal dismissed with costs.
Solicitors for the appellant, J. A. Meagher <& De Coek.
Solicitor for the respondent, N. D. Thomas.
J. B.
1,213
0
0